The Board of Directors (the “Board”) of Arrowhead Pharmaceuticals, Inc. (the “Company”) has established a standing committee to be known as the “Audit Committee.”
The purpose of the Audit Committee is to oversee the Company’s auditing, accounting and control functions, including primary responsibility for the financial reporting process of the Company. In particular, the Audit Committee shall assist the Board in monitoring:
- The integrity of the financial statements of the Company, to ensure the balance, transparency and integrity of published financial information,
- The outside auditor’s independence and qualifications,
- The performance of the Company’s outside auditors,
- The compliance by the Company with legal and regulatory requirements, and
- The effectiveness of the Company’s internal controls and risk management system.
The Audit Committee’s responsibilities shall also include:
- Preparing the report required by the rules of the Securities and Exchange Commission (the “SEC”) to be included in the Company’s annual proxy statement, and the appointment, compensation, retention, oversight and, where appropriate, replacement of the Company’s outside auditors, who are responsible to the Board and the Audit Committee.
The Audit Committee has authority to conduct or authorize investigations into any matters within its scope of responsibility. Such authority includes but is not limited to:
- Retaining outside counsel, accountants, outside advisors, consultants, or others to assist in the conduct of an investigation or, as it determines appropriate, to advise or assist in the performance of its functions.
- Seeking any information it requires from employees or external parties. Employees and external parties will be directed to cooperate and comply with the Audit Committee’s requests.
- Meeting with the senior financial personnel, company officers, outside auditors, or outside counsel, as necessary.
- Establishing procedures for dealing with concerns of employees regarding accounting, internal control and auditing matters.
- Establishing procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting, internal controls or accounting matters.
The Audit Committee shall be composed of such number of directors as may be appointed by the Board, but shall have at least three members, each of whom shall meet the SEC and NASDAQ independence and experience requirements, as determined by the Board. Specifically, each member of the Audit Committee shall be barred from accepting any consulting, advisory or other compensatory fee from the Company or any subsidiary of the Company, and shall not be an “affiliated person” of the Company or any subsidiary of the Company, in each case other than in such member’s capacity as a member of the Board or any committee of the Board. Such members shall be outside directors who are independent of Company management and in a better position to provide the independent point of view crucial to this Audit Committee’s effectiveness. All such members shall be financially literate and at least one shall qualify as a “financial expert” as defined under applicable SEC rules, as determined by the Board.
The Board shall appoint the members of the Audit Committee to serve until their successors have been duly designated and one member so appointed shall be designated by the Board as the chair of the Audit Committee.
Members of the Audit Committee may be removed by the Board for any reason at any time. Vacancies on the Audit Committee shall be filled by vote of the Board during its first meeting following the occurrence of such vacancy.
The Audit Committee shall meet at least four times a year, and may meet additionally as it deems necessary or appropriate in its judgment, either in person or telephonically, such additional meetings to be called by the chair or at least two other members of the Audit Committee.
The Audit Committee may adopt rules for its meetings and activities. In the absence of any such rules, Audit Committee actions shall be governed by the Company’s bylaws and applicable law. In all cases, a quorum of the Audit Committee shall be a majority of the persons then serving as members of the Audit Committee. Minutes shall be regularly kept of the Audit Committee’s proceedings, by a person appointed by the Audit Committee to do so.
The Audit Committee shall also meet at least quarterly with management and at least annually with the Company’s outside auditors in separate executive sessions.
The Audit Committee will carry out the following responsibilities:
Review the annual audited financial statements and Form 10K and the unaudited quarterly financial statements and Form 10-Q to be filed with the SEC. The Audit Committee will review the results of the audit for each fiscal year and MD&A disclosures, with management and the outside auditor, and recommend to the Board the inclusion of the annual audited financial statements in the Company’s Annual Report on Form 10-K to be filed with the SEC.
- Review with the outside auditor and management the results of the outside auditor’s review of the quarterly financial statements, including any significant accounting or disclosure and regulatory issues, prior to issuance of earnings releases and filing quarterly reports on Form 10-Q with the SEC.
- Oversee the periodic financial reporting process implemented by management and review the Company’s interim financial statements, annual financial statements and preliminary announcements prior to release.
- Review from time to time (but in no event less often than annually) with the outside auditor and management, as appropriate:
- Significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements , prior to filing the 10K/10Q with the SEC;
- Major issues regarding the Company’s accounting and auditing principles and practices, including critical accounting policies, and major changes in auditing and accounting principles and practices proposed or promulgated by regulatory accounting authorities or suggested by the outside auditor, internal auditor or management;
- Matters required to be discussed by Statement on Auditing Standards No. 61 and 90 relating to the conduct of the audit;
- The results of the audit, which should include a review of any audit problems or difficulties encountered by the outside auditor in the course of the audit work, including any restrictions on the scope of activities or access to required personnel or information, and any disagreements with management.
- Annually retain, evaluate, and, if appropriate, recommend termination of the Company’s outside auditor. The Audit Committee shall be directly responsible, in its capacity as a committee of the Board, for the appointment, compensation, oversight, and evaluation of performance of the work of the outside auditor.
- Approve in advance all audit engagement fees and the terms of all audit services to be provided by the outside auditor. The Audit Committee shall establish policies and procedures for the engagement of the outside auditor to provide permissible non-audit services, which shall include pre-approval of such services.
- At least annually, obtain and review a report from the outside auditor describing any relationships between the auditor and the Company and any other relationships that may adversely affect the auditor’s independence, consider the independence of the outside auditor, and otherwise take appropriate action to satisfy itself of the independence of the auditor, including considering whether the provision of non-audit services by the outside auditor is compatible with the auditor’s independence.
- At least annually, review the outside auditor’s proposed audit scope and approach (inclusions and exclusions), including coordination of audit effort with internal audit(if applicable), to ensure the completeness of coverage and reduction of redundant efforts.
- At least annually, obtain and review a report by the outside auditor describing its own internal quality-control procedures; any material issues raised by its most recent quality- control review or peer review; and any inquiry or investigation by governmental or professional authorities respecting any of its audits within the past five years, together with any steps taken to deal with any such issues.
- Discuss with the external auditor the appropriateness of the Company’s accounting policies.
- Review the internal control function of the Company, including the proposed programs for the coming year, and the coordination of such programs with the outside auditors, with particular attention to adherence to Sarbanes Oxley.
- Review progress of the internal control program, key findings and management’s action plans to address findings.
- Meet periodically with management to review the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures.
- Periodically review the adequacy and effectiveness of the Company’s disclosure controls and procedures and the Company’s internal controls, including any information technology security and control.
- Evaluate overall effectiveness of the Company’s internal control and risk management frameworks and consider whether recommendations made by the auditors have been implemented by management.
- Advise the Board with respect to the Company’s policies and procedures regarding compliance with applicable law and regulations.
- Review the effectiveness of procedures for the receipt, retention, resolution and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and for employees to make confidential and anonymous submissions of concern regarding questionable accounting or auditing matters. This should also include a review of management follow-up, including disciplinary action, for any actions of noncompliance.
- Regularly report to the Board about Audit Committee activities, issues and related recommendations.
- Report annually to the stockholders, describing the Audit Committee’s composition, responsibilities, and how they were discharged, and any other information required by regulators.
- Assess annually the Audit Committee’s and individual member’s performance of the duties specified in this Charter and report its findings to the Board.
- Annually review and assess the adequacy of this Charter and recommend any proposed changes to the Board. This Charter shall be disclosed in the Company’s proxy statement at least once every three years.
- When necessary, review the hiring of employees and former employees of the external auditors prior to any hiring taking place.
While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan and conduct audits or to determine that the Company’s financial statements are complete and accurate and are in accordance with generally accepted accounting principles.